US inflation fell slightly in April, bringing some relief to equity markets mid-week. As a result, the implied probability that the Federal Reserve will start cutting interest rates in September increased in futures markets.
In the United States, consumer prices continued to rise sharply in April, but not quite at the same pace as in the previous month. The current inflation rate is 3.4%, down from 3.5% in March. On a monthly basis, consumer prices rose by 0.3%, which was also somewhat more moderate than expected. The core inflation rate, which excludes energy and food prices, fell to 3.6% in April from 3.8% in the previous month. All in all, the latest inflation data do not seem to have significantly changed the outlook for the first interest rate cut by the Federal Reserve. The Federal Reserve has maintained a tight monetary policy for some time in the face of stubborn inflation, and Federal Reserve Chairman Jerome Powell recently expressed renewed caution about easing monetary policy.
On Wall Street, the Dow Jones Industrial closed up 0.9% at 39,908.00 points, after hitting a record high of 39,935.00 in late trading. The broader S&P 500 was up 1.2% at 5308.15, and the Nasdaq 100, which also hit a high, ended the day up 1.5% at 18,596.65 points.
Yesterday's retail sales data provided a glimpse into the US economy, and in particular the all-important consumer spending. According to the Commerce Department, retail sales were unchanged month-on-month in April, well below economists' consensus forecast of a 0.4% rise. Moreover, the 0.6% rise in sales in March was lower than the 0.7% initially reported. The latest analysis of the New York Fed's monthly survey of regional industrial sentiment was also negative. The resulting Empire State index fell by 1.3 points to minus 15.6 points in May. On average, analysts had expected an improvement to minus 10 points. Below zero, the indicator signals a decline in economic activity.
In Asia, stock markets saw an upward trend. In Tokyo, the Nikkei 225 was up 1.3% and in South Korea the Kospi was up 0.8% after a public holiday. Hong Kong's Hang Seng Index also reopened after a public holiday and rose by 1.9%, while the Shanghai Composite gained 0.5%. In Australia, the S&P/ASX 200 was up 1.7%.
The German government's Council of Economic Experts, the so-called "Wise Men", lowered their economic forecast for this year. They still expect gross domestic product to grow by 0.2% this year. Last autumn they were still forecasting growth of 0.7%. This is due to weak macroeconomic demand. The German government is also forecasting only moderate GDP growth of 0.3% this year. At the same time, the "economic experts" expect an average inflation rate of 2.4% this year and 2.1% in 2025.
Corporate news in focus: Swiss Re, Siemens, Deutsche Telekom, Wienerberger, Easyjet, BT Group, Applied Materials and Walmart.
Economic data in focus: Italy consumer prices, USA import and export prices, Philly Fed industrial indicator, initial jobless claims, housing starts and permits and industrial production.
Global economic and market trends at a glance
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Editor: Alessandro Fezzi
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
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